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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file no. 1-7434
AFLAC INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1167100
------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1932 Wynnton Road, Columbus, Georgia 31999
- ---------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 706-323-3431
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------------------ -------------------------
Common Stock, $.10 Par Value New York Stock Exchange
Pacific Exchange
Tokyo Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
--------
The number of shares of the registrant's Common Stock outstanding at March 16,
2000, with $.10 par value, was 265,087,239. The aggregate market value of the
voting stock held by non-affiliates of the registrant as of March 16, 2000 was
$11,129,693,599.
DOCUMENTS INCORPORATED BY REFERENCE
PART I Item 1 Exhibit 13 - pages 13-5 to 13-26 (Management's
Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)),
pages 13-38 to 13-51 (Notes 2 and 3 of the
Notes to the Consolidated Financial
Statements), and pages 13-62 to 13-64
(Note 9 of the Notes to the Consolidated
Financial Statements). The applicable
portions of the Company's Annual Report to
Shareholders for the year ended December 31,
1999, are included as Exhibit 13
Item 2 Exhibit 13 - page 13-68 (Note 12 of the Notes
to the Consolidated Financial Statements)
PART II Item 5 Exhibit 13 - pages 13-1, 13-2 and 13-62
(Note 9 of the Notes to the Consolidated
Financial Statements)
Item 6 Exhibit 13 - pages 13-3 and 13-4
Item 7 Exhibit 13 - pages 13-5 to 13-26
Item 7A Exhibit 13 - pages 13-7 to 13-8 and
13-15 to 13-19
Item 8 Exhibit 13 - pages 13-27 to 13-71
PART III Item 10 Incorporated by reference from the
definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 1,
2000 (the Proxy Statement)
Item 11 Incorporated by reference from the Proxy
Statement
Item 12 Incorporated by reference from the Proxy
Statement
Item 13 Incorporated by reference from the Proxy
Statement
i
AFLAC Incorporated
Annual Report on Form 10-K
For the Year Ended December 31, 1999
Table of Contents
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . I- 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . I-17
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . I-17
Item 4. Submission of Matters to a Vote of Security Holders. . . I-18
Item 4A. Executive Officers of the Company. . . . . . . . . . . . I-18
PART II
Item 5. Market for Company's Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . II- 1
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . II- 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . II- 1
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . II- 1
Item 8. Financial Statements and Supplementary Data. . . . . . . II- 1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . II- 1
PART III
Item 10. Directors and Executive Officers of the Company. . . . . III- 1
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . III- 1
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . III- 1
Item 13. Certain Relationships and Related Transactions . . . . . III- 1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . IV- 1
ii
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
AFLAC Incorporated was incorporated in 1973 under the laws of the State
of Georgia. AFLAC Incorporated is a general business holding company and acts
as a management company, overseeing the operations of its subsidiaries by
providing management services and making capital available. Its primary
business is supplemental health and life insurance, which is marketed and
administered primarily through its subsidiary, American Family Life Assurance
Company of Columbus (AFLAC). Most of AFLAC's policies are individually
underwritten and marketed at worksites through independent agents with
premiums paid by the employee. Our businesses in Japan (AFLAC Japan) and the
United States (AFLAC U.S.) service the two markets for our insurance
operations.
We are authorized to conduct insurance business in all 50 states, the
District of Columbia and several U.S. territories and foreign countries. Our
only significant foreign operation is AFLAC Japan, which accounted for 81%,
80% and 79% of the company's total revenues for 1999, 1998 and 1997,
respectively, and 87% and 86% of total assets at December 31, 1999 and 1998,
respectively.
We believe AFLAC is the world's leading writer of cancer expense
insurance. We continue to diversify our product offerings to include other
types of supplemental health products in both the United States and Japan.
AFLAC Japan, in addition to cancer plans, also sells care plans, supplemental
general medical expense plans, medical/sickness riders to our cancer plan, and
a living benefit life plan. AFLAC U.S. also sells other types of supplemental
health insurance, including hospital intensive care, accident and disability,
hospital indemnity, long-term care and short-term disability plans. We also
offer several life insurance plans in the United States and Japan.
For financial information relating to our foreign and U.S. operations,
see Exhibit 13, pages 13-5 to 13-26 (Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A)) and page 13-38 (Note 2
of the Notes to the Consolidated Financial Statements), which are incorporated
herein by reference.
Several significant non-operating items affected our net earnings during
the three-year period ended December 31, 1999.
Two corporate income tax rate reductions were enacted in Japan. The
statutory tax rate for AFLAC Japan declined from 45.3% to 41.7% in 1998 and
from 41.7% to 36.2% in 1999. These tax rate declines caused reductions in our
deferred income tax liability. The deferred tax effect for the 1998 tax
reduction was recognized in the first quarter of 1998, increasing net earnings
by $121 million ($.45 per basic share and $.44 per diluted share). The
deferred tax effect for the 1999 tax reduction was recognized in the first
quarter of 1999, increasing net earnings by $67 million ($.25 per basic share
and $.24 per diluted share). For additional information on the income tax
reductions, see Exhibit 13, page 13-56, Note 7 of the Notes to the
Consolidated Financial Statements.
I-1
Another factor affecting net earnings was a policyholder protection fund
system mandated by the Japanese government during the first quarter of 1998.
The pretax charge for our obligation to the new protection fund was $111
million in 1998 ($65 million after tax, or $.24 per basic and diluted shares).
In 1999, Toho Mutual Life Insurance Company, a Japanese insurer, was declared
insolvent by Japanese government regulators. This insolvency is expected to
deplete most of the policyholder protection fund established in 1998. In
order to replenish the policyholder protection fund, the Japanese government
and the life insurance industry agreed to new legislation that will increase
the life insurance industry's legal obligation to the fund as well as provide
government support. Our share of the industry's obligation was recognized in
the fourth quarter of 1999 and decreased pretax earnings by $64 million ($41
million after-tax, or $.15 per basic and diluted share). For further
information regarding this policyholder protection fund, see Exhibit 13, page
13-38, Note 2 of the Notes to the Consolidated Financial Statements.
Affecting net earnings in 1997 was the sale of our television business,
which consisted of seven network-affiliated stations. The sale of one station
closed on December 31, 1996. The sale of the six remaining stations was
completed in 1997. The pretax and after-tax gains recognized during the
second quarter of 1997 on the closing of the six stations were $267 million
and $211 million, respectively. The effect of the after-tax gain on 1997
basic and diluted net earnings per share was $.77 and $.75, respectively.
The following discussion of earnings comparisons focuses on operating
earnings and excludes realized investment gains/losses, the charges for the
mandated policyholder protection fund, the deferred income tax benefits from
the Japanese income tax rate reductions and the gain from the sale of the
television business. Operating earnings per share referred to in the
following discussion are based on the diluted number of average outstanding
shares.
Due to the relative size of AFLAC Japan, fluctuations in the yen/dollar
exchange rate can have a significant effect on our reported results. In years
when the yen weakens, translating yen into dollars causes fewer dollars to be
reported. When the yen strengthens, translating yen into dollars causes more
dollars to be reported.
The yen strengthened in relation to the dollar during 1999 after several
years of weakening. The average yen-to-dollar exchange rates were 113.96 in
1999, 130.89 in 1998 and 121.07 in 1997. The stronger yen in 1999 compared
with 1998 increased operating earnings by $.12 per share in 1999. The weaker
yen in 1998 and 1997 lowered operating earnings by $.05 per share in 1998
compared with 1997 and by $.09 in 1997 compared with 1996. Reported operating
earnings per share increased 28.2% to $2.00 in 1999, 17.3% to $1.56 in 1998
and 10.8% to $1.33 in 1997.
Our primary financial objective is to grow operating earnings per share
excluding the effect of foreign currency translations. Our goal for 1999 was
20% growth, which we exceeded. Excluding the effect of currency fluctuations,
operating earnings per share increased 20.5% in 1999 compared with 1998, 21.1%
in 1998 compared with 1997, and 18.3% in 1997 compared with 1996.
For further information regarding the impact of currency fluctuations on
our business, see Exhibit 13, pages 13-7 to 13-8 (Foreign Currency Translation
section of Management's Discussion and Analysis).
I-2
Insurance premiums and investment income from insurance operations are
the major sources of revenues. Our consolidated premium income was $7.3
billion in 1999 and $5.9 billion for both 1998 and 1997. For further
information on our consolidated premiums earned by business segment, see Note
2 of the Notes to the Consolidated Financial Statements in Exhibit 13, page
13-38, incorporated herein by reference.
The following table sets forth the changes in annualized premiums in
force for AFLAC's insurance business in Japan and the United States for the
years ended December 31.
(In millions) 1999 1998 1997
-------- -------- --------
Annualized premiums in force,
at beginning of year $ 6,931 $ 5,811 $ 5,953
New issues including
policy conversions 1,320 1,061 921
Change in unprocessed
policies 21 (24) (65)
Lapses and surrenders (684) (552) (479)
Other 34 23 26
Foreign currency translation
adjustment 773 612 (545)
------- ------- -------
Annualized premiums in force,
at end of year $ 8,395 $ 6,931 $ 5,811
======= ======= =======
INVESTMENTS AND INVESTMENT RESULTS
During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private
placement debt securities. Our past practice was to hold these securities to
their contractual or economic maturity dates. We have now made this our
formal policy. Accordingly, debt securities carried at a fair value of $6.4
billion were reclassified as of October 1, 1998, from the category "available
for sale" to "held to maturity." The related unrealized gain of $1.1 billion
as of October 1, 1998, on these securities is being amortized from other
comprehensive income into investment income over the remaining term of the
securities. The related premium over amortized cost in the carrying value of
the debt securities that was created when the reclassification occurred is
also being amortized as an offsetting charge to investment income.
In recent years, AFLAC Japan has purchased subordinated perpetual
debenture securities issued primarily by European and Japanese banks. These
securities are subordinated to other debt obligations of the issuer, but rank
higher than equity securities. Although these securities have no contractual
maturity, the issue-date fixed-rate interest coupons subsequently increase to
a market-interest rate plus 150 to 300 basis points and change to a variable-
interest rate basis, generally by the 10th to 25th year after issuance,
creating an economic maturity date.
I-3
The following table shows an analysis of investment securities (at cost
or amortized cost) at December 31:
AFLAC Japan AFLAC U.S.
(In millions) 1999 1998 1999 1998
----------------- -----------------
Available for sale:
Fixed-maturity securities $15,491 $12,886 $ 3,405* $ 2,772
Perpetual debentures 2,411 1,344 153 111
Equity securities 45 22 92 79
------ ------ ------ ------
Total available for sale 17,947 14,252 3,650 2,962
------ ------ ------ ------
Held to maturity:
Fixed-maturity securities 4,389 3,947 - -
Perpetual debentures 3,903 3,494 - -
------ ------ ------ ------
Total held to maturity 8,292 7,441 - -
------ ------ ------ ------
Total $26,239 $21,693 $ 3,650 $ 2,962
====== ====== ====== ======
*Includes $240 of securities held by the parent company.
Net investment income was $1.4 billion in 1999 and $1.1 billion in both
1998 and 1997.
AFLAC primarily invests within the Japanese, U.S. and Euroyen debt
securities markets. When committing cash flows to new investments, we
purchase only securities that are rated investment grade by the Securities
Valuation Office of the National Association of Insurance Commissioners (SVO).
We require that all private placement issuers have an initial rating of class
1 or 2 as determined by the SVO. Most of AFLAC's private placement issues are
issued under medium-term note programs and have standard covenants
commensurate with credit rankings, except when internal credit analysis
indicates that additional protective and/or event risk covenants are required.
For information on the composition of our investment portfolio and
investment results, see Exhibit 13, pages 13-11, 13-14 and 13-15 to 13-26
(discussions relating to investments, balance sheet and cash flow) and pages
13-43 to 13-52 (Notes 3 and 4 of the Notes to the Consolidated Financial
Statements), which are incorporated herein by reference.
INVESTMENTS - JAPAN
Approximately 93.3% of the 271.8 billion yen ($2.7 billion) that AFLAC
Japan had available for investment in 1999 was invested in yen-denominated
securities at an average yield of 4.54%. We invested 90.5% in longer-dated
securities at an average rate of 4.64%. The longer-dated sector includes
purchases of dual-currency bonds (yen principal securities that pay a dollar
coupon) at an average yield of 4.74%. An additional 2.8% was invested in yen-
denominated securities of various other sectors. Dollar-denominated
securities accounted for the remaining 6.7% of the purchases in 1999 at an
average yield to maturity of 7.42%.
I-4
Following is the composition of total investments and cash (at cost or
amortized cost) for AFLAC Japan as of December 31:
1999 1998
-------- --------
Debt securities:
Government and guaranteed 28.8% 31.3%
Municipalities 3.5 4.0
Public utilities 15.0 16.3
Banks/financial institutions 38.8 35.9
Other corporate 11.5 10.9
Equity securities .2 .1
Cash and cash equivalents 2.2 1.5
------ ------
100.0% 100.0%
====== ======
We use specific criteria to judge the credit quality and liquidity of our
investments, and we use a variety of credit rating services to monitor these
criteria. Applying those various credit ratings to a standardized rating
system based on the categories of a nationally recognized rating service, the
percentages of AFLAC Japan's debt securities, at amortized cost, as of
December 31 were as follows:
1999 1998
------ ------
AAA 30.2% 41.7%
AA 24.9 16.6
A 30.5 28.0
BBB 12.4 13.7
BB 2.0 -
----- -----
100.0% 100.0%
===== =====
At December 31, 1999, we owned debt securities rated below investment
grade in the amount of $530 million at amortized cost, or 2.0% of AFLAC
Japan's debt securities. These securities were issued by two Japanese banks
that had a credit rating downgrade following our purchase of the debt
securities. Subsequent to December 31, 1999, these two banks were upgraded to
`BBB.' However, another corporate issue with an amortized cost of $210
million was downgraded to `BB.'
Japan's life insurance industry has contended with low investment yields
for the last several years. Despite a series of premium rate increases
designed to help offset the effect of lower yields, two Japanese life
insurance companies have been declared insolvent during the last three years.
As a result, more attention has been paid to the composition of the life
insurance industry's assets. Our asset allocation is much different than the
industry as a whole and, we believe, is better suited to a low interest rate
environment. Based on March 31, 1999, Japanese Financial Supervisory Agency
(FSA) data, AFLAC had the highest portfolio yield among all of Japan's major
life insurers. AFLAC earned this distinction without sacrificing the quality
of its portfolio.
Our investments in the Japanese equity and investment real estate markets
continued to be immaterial in 1999.
I-5
INVESTMENTS - U.S.
Profits repatriated from AFLAC Japan to AFLAC U.S. totaled $243 million
in 1999, compared with $154 million in 1998 and $347 million in 1997. The
profit transfer in 1997 included $125 million of a non-recurring nature.
Including profit repatriation and bond swaps, AFLAC U.S. invested $1.3 billion
in 1999. Of that amount, approximately 7.3% was invested in U.S. government
or agency securities at an average yield of 6.57%, and 89.3% was invested in
corporate fixed-maturity securities at 7.26%. The remaining 3.4% was invested
in equities.
Following is the composition of total investments and cash (at cost or
amortized cost) for AFLAC U.S. as of December 31:
1999 1998
-------- --------
Debt securities:
U.S. Government 3.7% 4.0%
Municipalities .5 -
Mortgage-backed securities 3.0 .9
Public utilities 5.0 6.2
Sovereign and Supranational 4.4 4.0
Banks/financial institutions 44.5 50.6
Other corporate 35.7 31.0
Equity securities 2.5 2.6
Cash and cash equivalents .7 .7
------ ------
100.0% 100.0%
====== ======
AFLAC U.S. debt securities, at amortized cost, as of December 31 were
rated as follows:
1999 1998
------ ------
AAA 11.3% 11.2%
AA 22.5 25.4
A 56.1 55.5
BBB 10.1 7.9
----- -----
100.0% 100.0%
===== =====
I-6
INSURANCE - JAPAN
AFLAC Japan's earned premiums by product lines are included in Note 2 of
the Notes to the Consolidated Financial Statements, Exhibit 13, page 13-38.
The following table presents the changes in annualized premiums in force
for AFLAC Japan insurance for the years ended December 31:
(In millions) 1999 1998 1997
-------- -------- --------
Annualized premiums in force,
at beginning of year $ 5,538 $ 4,595 $ 4,893
New issues including
policy conversions 765 579 520
Change in unprocessed
policies 20 (25) (62)
Lapses and surrenders (281) (212) (193)
Other (12) (11) (18)
Foreign currency translation
adjustment 773 612 (545)
-------- -------- --------
Annualized premiums in force,
at end of year $ 6,803 $ 5,538 $ 4,595
======== ======== ========
We are experiencing a slight increase in lapses and surrenders due to the
poor economic conditions in Japan.
INSURANCE PLANS - JAPAN
AFLAC's insurance is designed to provide supplemental coverage for
medical and nonmedical costs that are not reimbursed under Japan's health
insurance system.
AFLAC Japan's sales mix is changing, although cancer life still accounts
for the majority of insurance in force. Cancer life sales accounted for 46.4%
of total new sales in yen in 1999, 49.4% in 1998 and 52.5% in 1997. Rider MAX
accounted for 39.8% of our sales in 1999 and 33.2% in 1998. Ordinary life
accounted for 7.8% of new sales in 1999, 3.8% in 1998 and 1.6% in 1997.
Living benefit life accounted for 2.3% of total new sales in 1999, 7.2% in
1998 and 28.3% in 1997.
The cancer life insurance plans offered for sale in Japan provide a fixed
daily indemnity benefit for hospitalization and outpatient services related to
cancer and a lump-sum benefit upon initial diagnosis of internal cancer. The
plans differ from the AFLAC U.S. cancer plans (described on page I-12) in that
the Japanese policies also provide death benefits and cash surrender values
(we estimate that approximately 27% of the premiums earned from all cancer
life plans are associated with these benefits). In 1997, AFLAC Japan
introduced a new economy cancer life policy with lower premium rates and
benefit levels. This plan was developed to mitigate the effect of premium rate
increases due to low investment yields available in Japan.
Care insurance provides periodic benefits to those who become bedridden,
demented or seriously disabled due to illness or accident. Prior to the
introduction of this care plan, we marketed a plan that primarily provided
dementia care benefits.
I-7
Our medical expense policy is similar to hospital indemnity insurance
products in the United States and provides cash benefits to policyholders when
they are hospitalized. This product is widely available in the Japanese
insurance marketplace, but AFLAC's policy is very competitive. Our policy
offers a maximum hospitalization benefit of 1,000 days, which is the longest
period offered in the industry.
The living benefit life plan is a life insurance policy that provides
lump-sum benefits when policyholders experience heart attack, cancer or
stroke. We are offering this product in two forms -- as a stand-alone policy
or as a rider to the cancer life plan. The rider adds heart attack and stroke
benefits to the cancer life policy. Marketing efforts for living benefit life
primarily focus on the sale of the rider.
Rider MAX, which we began selling in 1998, adds accident and
medical/sickness benefits to our popular cancer life policy.
Due to the continued low level of available investment yields in Japan,
industry regulators have directed insurers to increase premium rates on new
policy issues from time to time in recent years. For further information, see
Exhibit 13, page 13-11 of the Management's Discussion and Analysis.
JAPANESE ECONOMY
Japan's economy has been weak for several years. The financial strength
of many Japanese financial institutions deteriorated during that time, and
some experienced bankruptcy. As we have indicated in the past, the weak
economy in Japan in recent years has resulted in a difficult marketing
environment for AFLAC Japan, continued low yields available for new
investments and decreased consumer confidence.
Many commentators believe the Japanese economy has bottomed out and is on
the way to recovery. The Japanese government has developed various economic
stimulus packages in the last few years. The time required for the Japanese
economy to recover remains uncertain.
AGENCY FORCE - JAPAN
The "corporate agency" system has been important to the growth of AFLAC
Japan. Affiliated corporate agencies are formed when companies establish
subsidiary businesses to sell AFLAC products to their employees, suppliers and
customers. These agencies help us reach the employees of almost all of
Japan's large corporations. In 1998, we purchased a small Japanese insurance
agency. Its main functions are policyholder related services and direct
marketing programs for AFLAC Japan.
Our products are also sold through independent corporate agencies and
individual agencies not affiliated with large companies. As of December 31,
1999, there were 8,283 agencies in Japan with more than 41,400 licensed
agents, compared with 7,010 agencies and 32,622 licensed agents in 1998.
Agents' activities are principally limited to insurance sales, with
policyholder service functions handled by the main office in Tokyo and 62
offices throughout Japan.
I-8
COMPETITION - JAPAN
In 1974, AFLAC became the second foreign (non-Japanese) life insurance
company to gain direct access to the Japanese insurance market by obtaining a
license to do business in Japan. Through 1981, we were the only company in
Japan authorized to issue a cancer life insurance policy. Now, 18 other life
companies offer cancer insurance. However, we remain the leading provider of
cancer life insurance coverage in Japan, principally due to our lead time in
the market, unique marketing system (see Agency Force - Japan), low-cost
operations and product expertise developed in the United States. AFLAC has
been very successful in the sale of cancer life policies in Japan, with 13.4
million cancer life policies in force at December 31, 1999.
In December 1996, the governments of the United States and Japan reached
an agreement on deregulation of the Japanese insurance industry. The
agreement called for the gradual liberalization of the industry through the
year 2001 and included provisions to avoid "radical change" in the third
sector of the insurance industry, which includes our supplemental health
insurance products. AFLAC and other foreign-owned insurers, as well as many
small-to-medium-sized Japanese insurers, operate primarily in the third
sector. Beginning January 1, 2001, additional insurance companies will be
allowed to sell the type of third sector products that AFLAC Japan currently
offers. AFLAC has inherent competitive advantages through its distribution,
products, administrative efficiency and financial strength that should enable
it to grow even in a more competitive environment. We also hired an
independent firm to evaluate our progress and plans for deregulation. Their
analysis took four months to complete and affirmed that our strategies and
tactics have put us in a strong position to succeed in a more competitive
insurance market. However, the ultimate impact of deregulation is not
presently determinable.
AFLAC's strategy for future growth in Japan centers on broadening its
product line and expanding the distribution system. Although the basic plan
for growth is the same in Japan as in the United States, we have had to
formulate a strategy specifically tailored for the Japanese insurance
marketplace, which is very different from the United States market. There are
only 46 life insurance companies in Japan, compared with more than 2,000 in
the United States. In Japan, insurers have traditionally been restricted in
the types of policies they could offer. However, as Japan begins deregulating
the insurance industry, the marketplace should become more competitive, with
insurers able to offer more types of products, as they do in the United
States. When deregulation is complete, we believe we will be able to sell
more products than we are currently offering.
REGULATION AND REMITTANCE OF FUNDS - JAPAN
Payments are made from AFLAC Japan to the Parent Company for management
fees and to AFLAC U.S. for allocated expenses and remittances of earnings.
These payments totaled $282 million in 1999, $192 million in 1998 and $386
million in 1997. Management fees paid to the Parent Company are largely based
on expense allocations.
A portion of AFLAC Japan's annual earnings, as determined on a Japanese
statutory accounting basis, can be remitted each year to AFLAC U.S. after
complying with solvency margin provisions and satisfying various conditions
imposed by Japanese regulatory authorities for protecting policyholders.
Repatriated profits represent a portion of the after-tax earnings reported to
I-9
the Japanese Financial Supervisory Agency (FSA) on a March 31 fiscal year
basis each year. Such regulatory basis earnings are determined using
accounting principles that differ materially from U.S. generally accepted
accounting principles. Under Japanese statutory accounting practices, policy
acquisition costs are charged off immediately, policy benefit and claim
reserving methods are different, policyholder protection fund obligations are
not accrued, deferred income tax liabilities are recognized on a different
basis, and investment securities are carried at cost less certain market value
adjustments for foreign exchange losses on dollar-denominated securities.
Additionally, accounting standards for financial instruments are in the
process of being revised in Japan. Japanese regulatory earnings and related
profit repatriations may therefore vary materially from year to year because
of these differences.
The FSA imposes solvency standards that represent a form of risk-based
capital requirements. AFLAC Japan must meet these requirements to continue
profit transfers to AFLAC U.S. At this time, AFLAC Japan is in compliance with
these standards, and we do not expect these requirements to adversely affect
the funds available for repatriation from Japan. However, we may elect to
leave a portion of the funds available for repatriation in Japan to enhance
solvency margins for competitive purposes.
During the second quarter of 1997, Nissan Mutual Life Insurance Company
was declared insolvent. All life insurers doing business in Japan had
previously agreed to contribute to a voluntary policyholder protection fund
over a 10-year period that would be used to help offset insurer insolvencies.
During the second quarter of 1997, AFLAC Japan recognized a pretax charge of
$25 million for its obligation to this policyholder protection fund. The
after-tax charge was $14 million ($.05 per basic and diluted share).
In 1998, the Japanese government enacted a mandatory policyholder
protection fund system, and subsequently established the Life Insurance
Policyholders Protection Corporation. The life insurance industry is required
to contribute to this fund semi-annually over a 10-year period. The charge
for our share of the life insurance industry's obligation under the plan
enacted in early 1998 was recognized in the first quarter of 1998 and
decreased pretax earnings by $111 million for the year ended December 31,
1998. The after-tax charge was $65 million, or $.24 per basic and diluted
share.
In 1999, Toho Mutual Life Insurance Company, a Japanese insurer, was
declared insolvent by Japanese government regulators. This insolvency is
expected to deplete most of the policyholder protection fund that was
established in 1998. In order to replenish the protection fund, the Japanese
government and the life insurance industry agreed to new legislation that will
increase the life insurance industry's legal obligation to the fund as well as
provide government support. Our share of this new obligation was recognized
in the fourth quarter of 1999 and decreased pretax earnings by $64 million
($41 million after-tax, or $.15 per basic and diluted share).
In March 1998, the Japanese government reduced the corporate income tax
rate, which lowered AFLAC Japan's rate from 45.3% to 41.7%. The tax rate was
again reduced in March 1999, from 41.7% to 36.2%. These tax rate reductions
decreased our consolidated liability for deferred income taxes. The
reductions were the net effect of applying the new tax rates to the temporary
differences that exist between the Japanese tax basis and financial reporting
basis of assets and liabilities, and the limitations imposed by the U.S.
foreign tax credit provisions.
I-10
The reduction of the consolidated deferred income tax liability from the
1999 tax rate reduction increased net earnings in the first quarter of 1999 by
$67 million ($.25 per basic share, $.24 per diluted share). The 1998 tax rate
reduction reduced the deferred income tax liability in the first quarter of
1998 by $121 million ($.45 per basic share, $.44 per diluted share).
The 1999 reduction in the Japanese corporate income tax rate did not
significantly change our combined U.S./Japan effective tax rate due to the
operation of the U.S. foreign tax credit provisions.
For further information on the tax rate reductions, see Exhibit 13, page
13-56, Note 7 of the Notes to the Consolidated Financial Statements.
The insurance business in Japan, which is conducted as a branch office of
AFLAC, is subject to regulation by the FSA, similar to the regulation and
supervision in the United States as described on pages I-15 and I-16 under
"Regulation - U.S." AFLAC Japan files annual reports and financial statements
for the Japanese insurance operations based on a March 31 year-end, prepared
in accordance with Japanese regulatory accounting practices prescribed or
permitted by the FSA. Also, financial and other affairs of AFLAC Japan are
subject to examination by the FSA.
Reconciliations of AFLAC Japan net assets on a GAAP basis to net assets
determined on a Japanese regulatory accounting basis as of December 31 are as
follows:
(In millions - unaudited) 1999 1998
-------- --------
Net assets on GAAP basis $ 3,118 $ 2,726
Elimination of deferred policy
acquisition costs (2,856) (2,340)
Elimination of unrealized gains and
other adjustments to carrying value
of debt securities (2,762) (2,856)
Adjustment to policy liabilities 1,553 1,384
Adjustment to income tax liabilities 1,503 1,478
Reduction in premiums receivable (146) (128)
Policyholder protection fund 262 175
Other, net (34) (42)
-------- --------
Net assets on Japanese regulatory
accounting basis $ 638 $ 397
======== ========
For additional information regarding AFLAC Japan's operations, see
Exhibit 13, pages 13-8 to 13-12 (AFLAC Japan section of MD&A) and pages 13-38
and 13-62 (Notes 2 and 9 of Notes to the Consolidated Financial Statements),
which are incorporated herein by reference.
EMPLOYEES - JAPAN
AFLAC Japan had 2,105 employees at December 31, 1999. AFLAC Japan
considers its employee relations to be excellent.
I-11
INSURANCE - U.S.
AFLAC U.S.'s earned premiums by product line are summarized in Note 2 of
the Notes to the Consolidated Financial Statements in Exhibit 13, page 13-38.
The following table sets forth the changes in annualized premiums in
force for AFLAC U.S. insurance for the years ended December 31.
(In millions) 1999 1998 1997
------ ------ ------
Annualized premiums in force at
beginning of year $ 1,393 $ 1,216 $ 1,060
New issues including policy
conversions 555 482 401
Change in unprocessed policies 1 1 (3)
Lapses (403) (340) (286)
Other 46 34 44
------ ------ ------
Annualized premiums in force at
end of year $ 1,592 $ 1,393 $ 1,216
====== ====== ======
HEALTH INSURANCE PLANS - U.S.
AFLAC's insurance is designed to provide supplemental coverage for people
who already have major medical or primary insurance coverage. Our
supplemental health insurance plans are guaranteed renewable for the lifetime
of the policyholder (to age 70 for short-term disability policies). We cannot
cancel guaranteed-renewable coverage, but we can increase premium rates on
existing and future policies by class of policy in response to claims
experience higher than originally expected (subject to federal and state loss-
ratio guidelines) on a uniform, nondiscriminatory basis. Any premium rate
increases are subject to state regulatory approval.
AFLAC's cancer plans are designed to provide insurance benefits for
medical and nonmedical costs that are generally not reimbursed by major
medical insurance. We currently offer a series of three different cancer
plans in the United States that vary by benefit amount. All three plans
provide a first occurrence benefit that pays an initial amount when internal
cancer is first diagnosed, a fixed amount for each day an insured is
hospitalized for cancer treatment, and benefits for medical, radiation,
chemotherapy, surgery and a "wellness" benefit applicable toward certain
diagnostic tests such as mammograms, pap smears, prostate exams, flexible
sigmoidoscopy, etc. These plans also contain benefits that reimburse the
insured for certain direct expenses related to cancer treatment, up to
specified policy limits. We also issue several riders, including one that
increases the amount of the first occurrence benefit on each rider anniversary
date until the covered person reaches age 65 or until internal cancer is
diagnosed. AFLAC periodically introduces new forms of coverage, revising
benefits and related premiums based upon the anticipated needs of the
policyholders and our claim experience.
We offer an accident and disability policy to protect against losses
resulting from accidents. The accident portion of the policy includes lump-
sum benefits for accidental death, dismemberment and specific injuries. Fixed
benefits for hospital confinement, emergency treatment, follow-up treatments,
I-12
ambulance, transportation, family lodging, wellness, prosthesis, medical
appliances and physical therapy are also provided. Optional disability riders
are available to the primary insured and include choices of a sickness
disability rider, on-the-job disability rider and off-the-job disability
rider. These benefits are payable up to a maximum benefit period of one year
and for one disability at a time. Short-term disability policies provide
similar disability benefits offered with a variety of elimination
period/benefit period options. The longest such benefit period offered is two
years.
AFLAC also issues other supplemental health insurance, such as intensive
care, which is a low-premium policy that provides protection against the high
cost of intensive care facilities during hospital confinement, regardless of
reimbursements from other insurers. Other types of health insurance issued
include qualified and non-qualified long-term care plans, a hospital
confinement indemnity policy, and a new specified health event policy.
LIFE INSURANCE PLANS - U.S.
AFLAC issues various ordinary life insurance policies including whole
life, term life, and limited pay life. We also issue voluntary group term
life. A large portion of ordinary term life is sold through payroll deduction
at the worksite.
AGENCY FORCE AND MARKETING - U.S.
Our sales force is comprised of independent sales agents who are licensed
to sell accident and health insurance. Many are also licensed to sell life
insurance. Most agents' efforts are directed toward selling supplemental
health insurance at the worksite. The average number of U.S. agents actively
producing business monthly during 1999 was 8,807, compared with 7,918 in 1998
and 7,376 in 1997.
Agents' activities are principally limited to sales, with policyholder
service functions, including issuance of policies, premium collection, payment
notices and claims handled by the staff at headquarters. Agents are paid
commissions based on first-year and renewal premiums from their sales of
insurance products. The state, regional and district sales coordinators are
also independent contractors, and are compensated by override commissions.
We have concentrated on the development of marketing at the worksite.
This method offers policies to individuals through common media such as
employment, trade and other associations. This manner of marketing is
distinct from "group" insurance sales in that each individual insured is
directly contacted by the sales associate. Policies are individually
underwritten, with premiums generally paid by the employee. Additionally,
AFLAC supplemental policies are portable, meaning that individuals may retain
their full insurance coverage upon separation from employment or such
affiliation, generally at the same premium. A major portion of premiums on
such sales are collected through payroll deduction or other forms of
centralized billings. Group-issued plans normally result in a lower average
age of the insured at the time of policy issuance and also result in certain
savings in administrative costs, a portion of which are passed on to the
policyholder in the form of reduced premiums. Marketing at the worksite
enables the agency force to reach a greater number of prospective
policyholders than individual solicitation and lowers distribution costs.
I-13
Another valuable marketing and sales tool is the flexible benefits
program, or cafeteria plan, which allows an employee to pay for medical
insurance using pretax dollars. These programs help achieve increased
penetration as agents are required to present the program to all employees.
They also help improve overall persistency levels due to the limited changes
allowed during the plan year.
We continue to develop marketing arrangements with insurance brokers.
Insurance brokers generally have better access to larger groups than
independent agents. The core of our distribution network will remain
independent agents.
In 1999, AFLAC's U.S. premiums collected were $1.3 billion, 7.2% of which
was collected in Texas, 6.2% in Florida, 5.6% in Georgia, and 5.4% in North
Carolina. Premiums collected in all other states were individually less than
5% of AFLAC's U.S. premiums.
COMPETITION - U.S.
The accident and health and life insurance industry in the United States
is highly competitive. AFLAC competes with a large number of insurers, some
of which have been in business for a longer period of time. In the United
States, there are more than 2,000 life and accident and health insurance
companies.
Private insurers and voluntary and cooperative plans, such as Blue Cross
and Blue Shield, provide insurance for meeting basic hospitalization and
medical expenses. Much of this insurance is sold on a group basis. The
federal and state governments also pay substantial costs of medical treatment
through Medicare and Medicaid programs. Such major medical insurance
generally covers a substantial amount of the medical (but not nonmedical)
expenses incurred by an insured as a result of cancer or other major
illnesses. AFLAC's policies are designed to provide coverage that is
supplemental to coverage provided by major medical insurance. Our benefits
may also be used to defray nonmedical expenses.
Since other insurers generally do not provide full coverage of medical
expenses or any coverage of nonmedical expenses, our supplemental insurance is
not an alternative to major medical insurance, but is sold to complement
(supplement) major medical insurance by helping cover the gap between major
medical insurance reimbursements and the total costs of an individual's health
care. Thus we compete only indirectly with major medical insurers in terms of
premium rates and similar factors. However, the scope of the major medical
coverage offered by other insurers does represent a limitation on the market
for our products. Accordingly, expansion of coverage by other insurers or
governmental programs could adversely affect our business opportunities.
Conversely, any reduction of coverages, such as increased deductibles and
copayments, by other insurers or governmental programs could favorably affect
our business opportunities.
We compete directly with other insurers that offer supplemental health
insurance and believe that our policies and premium rates are generally
competitive with those offered by other companies selling similar types of
insurance.
For additional information regarding U.S. insurance operations, see
Exhibit 13, pages 13-13 to 13-14 (AFLAC U.S. section of MD&A), which is
incorporated herein by reference.
I-14
REGULATION - U.S.
The Parent Company and its insurance subsidiaries are subject to state
regulations in the United States as an insurance holding company system. Such
regulations generally provide that transactions between companies within the
holding company system must be fair and equitable. In addition, transfer of
assets among such affiliated companies, certain dividend payments from
insurance subsidiaries and material transactions between companies within the
system are subject to prior notice to, or approval by, state regulatory
authorities.
AFLAC and its subsidiaries, in common with all U.S. insurance companies,
are subject to regulation and supervision in the states and other
jurisdictions in which they do business. In general, the insurance laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers relating to, among other things: granting and revoking
licenses to transact business, regulating trade practices, licensing agents,
prior approval of forms of policies and premium rate increases, standards of
solvency and maintenance of specified policy benefit reserves and minimum loss
ratio requirements, capital for the protection of policyholders, limitations
on dividends to shareholders, the nature of and limitations on investments,
deposits of securities for the benefit of policyholders, filing of financial
statements prepared in accordance with statutory insurance accounting
practices prescribed or permitted by the regulatory authorities, and periodic
examinations of the financial, market conduct, and other affairs of insurance
companies.
Currently, prescribed or permitted statutory accounting principles (SAP)
used by insurers for financial reporting to state insurance regulators may
vary between states and between companies. The National Association of
Insurance Commissioners (NAIC) has recodified SAP to promote standardization
throughout the industry. These new accounting requirements are presently
planned by the NAIC to be effective for 2001. They must also be adopted by
the individual state insurance departments.
For further information concerning state regulatory and dividend
restrictions, see Exhibit 13, page 13-62 (Note 9 - Statutory Accounting and
Dividend Restrictions of Notes to the Consolidated Financial Statements),
incorporated herein by reference.
The NAIC risk-based capital formula for U.S. life insurance companies
established capital requirements based on insurance risk, business risk, asset
risk and interest rate risk. These requirements are intended to facilitate
identification by insurance regulators of inadequately capitalized insurance
companies based upon the types and mixtures of risks inherent in the insurer's
operations. The formulas for determining the amount of risk-based capital
specify various weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of the company's regulatory total adjusted
capital to its authorized control level risk-based capital as defined by the
NAIC. Companies below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. The
levels are company action, regulatory action, authorized control and mandatory
control. Our NAIC risk-based capital ratio exceeds all regulatory action
levels and continues to reflect a very strong statutory capital and surplus
position.
I-15
Two states have laws, regulations or regulatory practices that either
prohibit the sale of specified disease insurance, such as our cancer expense
insurance, or make its sale impractical. These states are Massachusetts and
New Jersey. The remainder of the states do not impose prohibitions or
restrictions that prevent us from marketing cancer expense insurance. AFLAC
U.S. is marketing several of its other products in Massachusetts and New
Jersey.
Under insurance guaranty fund laws in most U.S. states, insurance
companies doing business in those states can be assessed for policyholder
losses up to prescribed limits that are incurred by insolvent companies with
similar lines of business. Such assessments have not been material to us in
the past. We believe that future assessments relating to companies in the
U.S. currently involved in insolvency proceedings will not materially impact
the consolidated financial statements.
EMPLOYEES - U.S.
In the U.S. insurance operations, we had 2,306 employees at December 31,
1999. We consider our employee relations to be excellent.
POLICY LIABILITIES - JAPAN AND U.S.
The reserves for policy liabilities reported in the financial statements
have been computed in accordance with generally accepted accounting principles
(GAAP). These reserves differ from those reflected in the various regulatory
financial statements filed by the Company. Such differences arise from the use
of different mortality, morbidity, interest, lapse assumptions and actuarial
reserving methods as required by the laws of the various states and Japan.
OTHER OPERATIONS
The Company's other operations include the parent company and a printing
subsidiary. These operations had 262 employees at December 31, 1999.
In 1999, we invested $17 million for minor equity interests in two
companies that provide outsourcing for human resource functions. In 1998, we
purchased a small Japanese insurance agency. Its main functions are to
provide policyholder-related services and direct marketing programs for AFLAC
Japan.
YEAR 2000
We did not experience any material date-related problems with our
internal information or other systems, nor did we experience any material
disruptions in connection with external information and data exchanges in
connection with the year 2000 date rollover. Our preparations for year 2000
were completed as of the end of calendar year 1999 and it was not necessary to
implement any contingency plans prepared as part of those efforts. We have
discontinued regular meetings of our year 2000 executive steering committee.
We will continue to monitor our internal systems and external information
and data exchanges throughout the year for first date occurrence events.
Based on the information now available to us, we do not expect any material
disruptions with respect to such events during the coming year. Since the
inception of the year 2000 project, we incurred costs of approximately $35
million for system upgrades or modifications; of this amount, approximately
$11 million was capitalized.
I-16
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information, so long as
those informational statements are identified as forward-looking and are
accompanied by meaningful, cautionary statements identifying important factors
that could cause actual results to differ materially from those discussed. We
desire to take advantage of these provisions. This report contains cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in this Form 10-K and in any other
statements made by company officials in oral discussions with the financial
community and contained in documents filed with the Securities and Exchange
Commission (SEC). Forward-looking statements are not based on historical
information and relate to future operations, strategies, financial results or
other developments. In particular, statements containing words such as
"expect," "anticipate," "believe," "goal," "objective" or similar words as
well as specific projections of future results generally qualify as forward-
looking. AFLAC undertakes no obligation to update such forward-looking
statements.
We caution readers that the following factors, in addition to other
factors mentioned from time to time in our reports filed with the SEC, could
cause actual results to differ materially: regulatory developments,
assessments for insurance company insolvencies, competitive conditions, new
products, ability to repatriate profits from Japan, general economic
conditions in the United States and Japan, changes in U.S. and/or Japanese tax
laws, adequacy of reserves, credit and other risks associated with AFLAC's
investment activities, significant changes in interest rates, and fluctuations
in foreign currency exchange rates.
ITEM 2. PROPERTIES
AFLAC owns an 18-story office building, which is the worldwide
headquarters, and a five-story administrative office building, which was
completed in 1998 at a cost of $17 million, located on approximately 14 acres
of land in Columbus, Georgia. We also own a six-story parking garage, two
additional buildings located on the same property and additional
administrative office buildings. An insurance subsidiary occupies leased
office space in Albany, New York.
In Tokyo, Japan, AFLAC owns an 11-story administrative office building.
AFLAC leases office space in Tokyo along with regional sales offices located
throughout the country and owns a training facility in Tokyo.
ITEM 3. LEGAL PROCEEDINGS
We are a defendant in various litigation considered to be in the normal
course of business. Some of this litigation is pending in Alabama, where
large punitive damages bearing little relation to the actual damages sustained
by plaintiffs have been awarded against other companies, including insurers,
in recent years. Although the final results of any litigation cannot be
predicted with certainty, we believe the outcome of pending litigation will
not have a material adverse effect on our financial position, results of
operations, or cash flows.
I-17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders for a vote in the
fourth quarter ended December 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
NAME PRINCIPAL OCCUPATION (*) AGE
- ------------------- ------------------------------------- ---
Paul S. Amos Chairman, AFLAC Incorporated and 73
American Family Life Assurance
Company of Columbus (AFLAC)
Daniel P. Amos Chief Executive Officer, AFLAC 48
Incorporated and AFLAC; President,
AFLAC Incorporated and AFLAC;
Director, The CIT Group, Inc.,
Livingston, NJ; Director, Georgia
Power Company, Atlanta, GA
Monthon Chuaychoo Vice President, Financial Services, 56
AFLAC Incorporated and AFLAC
Kriss Cloninger III Executive Vice President, Chief 52
Financial Officer, AFLAC
Incorporated and AFLAC;
Treasurer, AFLAC Incorporated
Norman P. Foster Executive Vice President, Corporate 65
Finance, AFLAC Incorporated
and AFLAC
Kenneth S. Janke Jr. Senior Vice President, Investor 41
Relations, of AFLAC Incorporated
Akitoshi Kan Executive Vice President, Internal 52
Operations, AFLAC U.S., since January
2000 and Deputy Chief Financial Officer,
AFLAC Incorporated since April 1999;
Executive Vice President, AFLAC
International until December 1999;
Executive Vice President, AFLAC Japan
since January 1998 until March 1999 and
Deputy Chief Financial Officer, AFLAC,
Senior Vice President, AFLAC Japan,
Accounting, Information Systems, ABC and
Legal Affairs until March 1999; Senior
Vice President, AFLAC Japan, Accounting,
Corporate Planning, Audit, and Legal
Affairs until January 1997; Vice
President, AFLAC Japan Accounting
Department until 1995
I-18
Nobuo Kawamura Senior Vice President, AFLAC Japan, 55
ABC Promotion, Policy Maintenance,
Premium Accounting since January 1999;
Senior Vice President, AFLAC Japan,
ABC Promotion, Policy Maintenance,
Premium Accounting, Administration
Support until January 1999
Joseph P. Kuechenmeister Senior Vice President, Director 58
of Marketing, AFLAC
Joey M. Loudermilk Senior Vice President, General Counsel 46
and Corporate Secretary, AFLAC
Incorporated and AFLAC; Director,
Legal and Governmental Relations,
AFLAC
Hidefumi Matsui President, AFLAC Japan, since January 55
1995; Executive Vice President, AFLAC
Japan until 1995
Shoichi Matsumoto Executive Vice President, Director 54
of Marketing, AFLAC Japan, since January
1998; Senior Vice President, Director of
Marketing, AFLAC Japan, until January 1998;
Senior Vice President, AFLAC Japan, until
July 1997; Vice President, Assistant
Director of Marketing, AFLAC Japan, until
January 1996
Minoru Nakai President, AFLAC International, Inc. 58
Yoshiki Otake Chairman, AFLAC Japan, since January 60
1995; President, AFLAC Japan, until
December 1994; Vice Chairman, AFLAC
International, Inc.
E. Stephen Purdom Executive Vice President, 52
AFLAC; Retired Director, Trust Company
Bank, Columbus, GA
Joseph W. Smith, Jr. Senior Vice President, Chief Investment 46
Officer, AFLAC
Gary L. Stegman Senior Vice President, Assistant Chief 50
Financial Officer, AFLAC
Incorporated and AFLAC; Treasurer
and Assistant Secretary, AFLAC
(*) Unless specifically noted, the respective executive officer has held
the occupation(s) set forth in the table for at least five years.
Each executive officer is appointed annually by the board of
directors and serves until his successor is chosen and qualified,
or until his death, resignation or removal.
I-19
PART II
Pursuant to General Instruction G to Form 10-K, Items 5 through 8 are
incorporated by reference from the Company's 1999 Annual Report to
Shareholders, the appropriate sections of which are included herein as Exhibit
13.
Exhibit 13 Annual Report
Pages Pages
---------- --------------
ITEM 5. MARKET FOR THE COMPANY'S COMMON 13-1; 13-2; 1; 52 (Note 9);
EQUITY AND RELATED SHAREHOLDER 13-62 56 and 59
MATTERS (Note 9)
ITEM 6. SELECTED FINANCIAL DATA 13-3; 13-4 32 - 33
ITEM 7. MANAGEMENT'S DISCUSSION AND 13-5 to 19 - 31
ANALYSIS OF FINANCIAL CONDITION 13-26
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE 13-7 to 20 - 21;
DISCLOSURES ABOUT MARKET RISK 13-8, 13-15 25 - 27
to 13-19
ITEM 8. FINANCIAL STATEMENTS AND 13-27 to 34 - 56
SUPPLEMENTARY DATA 13-71
ITEM 9. CHANGES IN AND DISAGREEMENTS None None
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
II-1
PART III
Pursuant to General Instruction G to Form 10-K, Items 10 through 13 are
incorporated by reference from the Company's definitive Proxy Statement
relating to the Company's 2000 Annual Meeting of Shareholders, which was filed
with the Securities and Exchange Commission on March 16, 2000, pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
Refer to the Information Refer to
Contained in the Proxy Printed
Statement under Captions Proxy
(filed electronically) Statement
Pages
------------------------ ---------
ITEM 10. DIRECTORS AND EXECUTIVE Security Ownership of 3 - 7
OFFICERS OF THE COMPANY Management. 1. Election
Directors of Directors
Executive Officers -
see Part I, Item 4A
herein
ITEM 11. EXECUTIVE COMPENSATION Board and Committee 8 - 19
Meetings and Directors
Compensation; Summary
Compensation Table; De-
fined Benefit Pension
Plan; Retirement Plans
for Key Executives;
Employment Contracts and
Termination of Employ-
ment Arrangements
ITEM 12. SECURITY OWNERSHIP OF Voting Securities and 2 - 7
CERTAIN BENEFICIAL Principal Holders
OWNERS AND Thereof; Security Owner-
MANAGEMENT ship of Management
1. Election of Directors
ITEM 13. CERTAIN RELATIONSHIPS Certain Transactions 19
AND RELATED and Relationships
TRANSACTIONS
III-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS Page(s)
-----------
Included in Part II of this report and
incorporated by reference to the following
pages of Exhibit 13:
AFLAC Incorporated and Subsidiaries:
Consolidated Statements of Earnings for 13-27
each of the years in the three-year
period ended December 31, 1999
Consolidated Balance Sheets, at 13-28 -
December 31, 1999 and 1998 13-29
Consolidated Statements of Shareholders' 13-30
Equity, for each of the years in the
three-year period ended December 31,
1999
Consolidated Statements of Cash Flows 13-31 -
for each of the years in the three-year 13-32
period ended December 31, 1999
Consolidated Statements of Comprehensive 13-33
Income for each of the years in the
three-year period ended December 31, 1999
Notes to the Consolidated Financial 13-34 to
Statements 13-68
Report of Independent Auditors 13-70
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Auditors' Report on Financial Statement Schedules IV-5
Schedule II - Condensed Financial Information of IV-6 -
Registrant at December 31, 1999 IV-11
and 1998, and for each of the
years in the three-year period
ended December 31, 1999
Schedule III - Supplementary Insurance Information IV-12
for each of the years in the three-
year period ended December 31, 1999
Schedule IV - Reinsurance for each of the IV-13
years in the three-year period
ended December 31, 1999
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
IV-1
3. EXHIBITS
3.0 - Articles of Incorporation, as amended - incorporated by
reference from Form 10-Q for March 31, 1997,
Commission file number 1-7434, Accession No. 0000004977-
97-000011, Exhibit 3.0; and Bylaws of the Company, as
amended - incorporated by reference from
Form 10-Q for June 30, 1996, Commission file number
1-7434, Accession No. 0000004977-96-000012, Exhibit 3.0.
4.0 - There are no long-term debt instruments in which the total
amount of securities authorized exceeds 10% of the total
assets of AFLAC Incorporated and its subsidiaries on a
consolidated basis. We agree to furnish a copy
of any long-term debt instruments to the Securities
and Exchange Commission upon request.
10.0* - American Family Corporation Incentive Stock Option Plan
(1982) - incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the
AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and
Stock Option Plan (1985).
10.1* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement No.
33-44720 on Form S-8 with respect to the AFLAC Incorporated
(Formerly American Family Corporation) Incentive Stock
Option Plan (1982) and Stock Option Plan (1985).
10.1.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.1.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.3* - AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 1998 - incorporated by
reference from 1998 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-99-000010, Exhibit 10.3.
10.3.1* - Amendment to the AFLAC Incorporated Supplemental Executive
Retirement Plan effective January 1, 1999, filed with the
1999 Form 10-K.
10.4* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.5* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.6* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
IV-2
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.7* - American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.9.
10.8* - AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 - incorporated by reference from Form
10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.1.
10.9* - AFLAC Incorporated Deferred Compensation Agreement with
Paul S. Amos, dated July 15, 1997 - incorporated by
reference from 1997 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-98-000006, Exhibit 10.11.
10.10* - AFLAC Incorporated 1997 Stock Option Plan, incorporated
by reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
97-000007, Appendix B.
10.11* - AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 - incorporated by reference
from Form S-8 Registration Statement No. 333-69333,
Accession No. 0000004977-98-00024, Exhibit 4.
10.12* - AFLAC Incorporated Amended and Restated Management
Incentive Plan, effective January 1, 1999 - incorporated
by reference from the 1999 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
99-000007, Exhibit A.
12.0 - Statement regarding the computation of ratio of earnings
to fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1999.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 333-16533 with respect to the
AFLAC Associate Stock Bonus Plan, as Amended and Restated
as of January 1, 1999.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
IV-3
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
27.0** - Financial Data Schedule for December 31, 1999.
* Management contract or compensatory plan or agreement.
** All Financial Data Schedules are submitted in the electronic filing only.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the quarter ended
December 31, 1999.
(c) EXHIBITS FILED WITH CURRENT FORM 10-K
10.3.1* - Amendment to the AFLAC Incorporated Supplemental Executive
Retirement Plan effective January 1, 1999.
12.0 - Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1999.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 333-16533 with respect to the
AFLAC Associate Stock Bonus Plan, as Amended and Restated
as of January 1, 1999.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
27.0** - Financial Data Schedule for December 31, 1999.
* Management contract or compensatory plan or agreement.
** All Financial Data Schedules are submitted in the electronic filing only.
IV-4
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Shareholders and Board of Directors
AFLAC Incorporated:
Under date of January 27, 2000, we reported on the consolidated balance sheets
of AFLAC Incorporated and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, shareholders' equity, cash
flows, and comprehensive income for each of the years in the three-year period
ended December 31, 1999, as contained in the 1999 annual report to
shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedules as listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
January 27, 2000
IV-5
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
AFLAC Incorporated (Parent Only)
(In millions, except for share amounts)
December 31,
1999 1998
-------- --------
ASSETS:
Investments and cash:
Fixed maturity securities available
for sale (amortized cost $240) $ 232 $ -
Investments in subsidiaries* 4,898 4,614
Other investments 9 3
Cash and cash equivalents 17 15
------- -------
Total investments and cash 5,156 4,632
Due from subsidiaries* 29 29
Other receivables 3 3
Property and equipment, net 6 7
Other assets 47 6
------- -------
Total assets $ 5,241 $ 4,677
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Due to subsidiaries* $ 1 $ 1
Notes payable 1,091 578
Employee and beneficiary benefit plans 250 235
Income taxes, primarily deferred 11 68
Other liabilities 20 25
------- -------
Total liabilities 1,373 907
------- -------
Shareholders' equity:
Common stock of $.10 par value: (In thousands)
Authorized 400,000 shares; issued
320,349 shares in 1999 and 317,971
shares in 1998 32 32
Additional paid-in capital 310 235
Retained earnings 3,356 2,862
Accumulated other comprehensive income:
Unrealized foreign currency
translation gains 232 219
Unrealized gains on investment securities 1,032 1,332
Treasury stock, at average cost (1,094) (910)
------- -------
Total shareholders' equity 3,868 3,770
------- -------
Total liabilities and
shareholders' equity $ 5,241 $ 4,677
======= =======
* Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-6
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Earnings
AFLAC Incorporated (Parent Only)
(In millions)
Years ended December 31,
1999 1998 1997
-------- -------- --------
Revenues:
Dividends from subsidiaries* $ 162 $ 173 $ 118
Management and service fees
from subsidiaries* 26 28 32
Investment income 13 1 2
Interest from subsidiaries* 2 - -
Other income - 1 1
------ ------ ------
Total revenues 203 203 153
------ ------ ------
Operating expenses:
Interest expense 15 10 10
Other operating expenses 45 61 83
------ ------ ------
Total operating expenses 60 71 93
------ ------ ------
Earnings before income taxes and
equity in undistributed earnings
of subsidiaries 143 132 60
Income tax expense:
Current 2 9 1
Deferred - - 14
------ ------ ------
Total income taxes 2 9 15
------ ------ ------
Earnings before equity in
undistributed earnings of
subsidiaries 141 123 45
Equity in undistributed earnings
of subsidiaries 430 364 540
------ ------ ------
Net earnings $ 571 $ 487 $ 585
====== ====== ======
*Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-7
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Cash Flows
AFLAC Incorporated (Parent Only)
Years ended December 31,
(In millions) 1999 1998 1997
------ ------ ------
Cash flows from operating activities:
Net earnings $ 571 $ 487 $ 585
Adjustments to reconcile net
earnings to net cash provided
from operating activities:
Equity in undistributed
earnings of subsidiaries* (430) (364) (540)
Deferred income taxes - - 14
Change in income taxes payable 2 9 -
Increase in employee and
beneficiary benefit plans 15 27 24
Other, net (20) (2) 30
----- ----- -----
Net cash provided by
operating activities 138 157 113
----- ----- -----
Cash flows from investing activities:
Fixed maturity securities sold 100 - -
Fixed maturity securities purchased (341) - -
Other investments (acquired) disposed of (6) 10 -
Purchase of mortgage loans from subsidiary* - - (10)
Purchase of investees and subsidiary (note B) (17) (8) -
----- ----- -----
Net cash provided (used) by
investing activities (264) 2 (10)
----- ----- -----
Cash flows from financing activities:
Proceeds from borrowings 446 124 409
Principal payments under debt obligations (89) (115) (191)
Dividends paid to shareholders (72) (63) (57)
Net change in amount due to/from subsidiaries* - (21) (4)
Purchases of treasury stock (224) (125) (314)
Treasury stock reissued 51 40 36
Proceeds from exercise of stock options 16 7 5
----- ----- -----
Net cash provided (used) by
financing activities 128 (153) (116)
----- ----- -----
Net change in cash and cash equivalents 2 6 (13)
Cash and cash equivalents at beginning of year 15 9 22
----- ----- -----
Cash and cash equivalents at end of year $ 17 $ 15 $ 9
===== ===== =====
*Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-8
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Comprehensive Income
AFLAC Incorporated (Parent Only)
(In millions)
Years ended December 31,
1999 1998 1997
-------- -------- --------
Net earnings $ 571 $ 487 $ 585
------- ------- -------
Other comprehensive income,
before income taxes:
Foreign currency translation
adjustments:
Change in unrealized foreign
currency translation gains (losses)
during year - Parent only (151) (64) 44
Equity in change in unrealized
foreign currency translation
gains (losses) of subsidiaries
during year 23 (20) -
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during the year - parent only (8) - -
Equity in unrealized gains (losses)
on investment securities held
by subsidiaries (371) 171 1,693
Equity in reclassification adjustment
for realized (gains) losses of
subsidiaries included in net earnings 13 3 4
------ ------ ------
Total other comprehensive
income (loss) before income taxes (494) 90 1,741
Income tax expense (benefit) related to
items of other comprehensive income (207) 98 692
------ ------ ------
Other comprehensive income (loss),
net of income taxes (287) (8) 1,049
------ ------ ------
Total comprehensive income $ 284 $ 479 $ 1,634
====== ====== ======
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-9
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Notes to Condensed Financial Statements
AFLAC Incorporated (Parent Only)
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
AFLAC Incorporated and Subsidiaries (see Part II - Item 8).
(A) NOTES PAYABLE
A summary of notes payable at December 31, 1999 and 1998 follows:
(In millions) 1999 1998
------ ------
1.67% yen-denominated senior notes due April 2009. . $ 541 $ -
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due
annually through July 2001:
2.29% fixed interest rate. . . . . . . . . . . . 222 294
Variable interest rate (.55% at
December 31, 1999) . . . . . . . . . . . . . . 31 35
Revolving credit agreement due November 2002:
1.24% fixed interest rate. . . . . . . . . . . . 114 134
Variable interest rate (.50% at
December 31, 1999) . . . . . . . . . . . . . . 138 115
.50% short term. . . . . . . . . . . . . . . . . . 45 -
------ ------
Total notes payable. . . . . . . . . . . . . . . $ 1,091 $ 578
====== ======
The aggregate contractual maturities of the notes payable for each of the
years after December 31, 1999, are as follows:
(In millions)
2000 . . . . . . . . . . . . . . . . . . . . . . $ 173
2001 . . . . . . . . . . . . . . . . . . . . . . 125
2002 . . . . . . . . . . . . . . . . . . . . . . 252
2009 . . . . . . . . . . . . . . . . . . . . . . 541
For further information regarding notes payable, see Exhibit 13, page 13-
55 (Note 6 of the Notes to the Consolidated Financial Statements).
(B) PURCHASES OF SUBSIDIARIES
In 1999, we purchased minor equity interests in two companies that
provide outsourcing for human resource functions. In 1998, we purchased a
small Japanese insurance agency. Its main functions are policyholder-related
services and direct marketing programs for AFLAC Japan.
IV-10
(C) INCOME TAXES
The Company and its eligible U.S. subsidiaries file a consolidated U.S.
federal income tax return. Income tax liabilities or benefits are recorded by
each principal subsidiary based upon separate return calculations, and any
difference between the consolidated provision and the aggregate amounts
recorded by the subsidiaries is reflected in the Parent Company financial
statements.
For further information on income taxes, see Exhibit 13, page 13-56, Note
7 of the Notes to the Consolidated Financial Statements.
(D) DIVIDEND RESTRICTIONS
See Exhibit 13, page 13-62 (Note 9, Statutory Accounting and Dividend
Restrictions, of Notes to the Consolidated Financial Statements) for
information regarding dividend restrictions.
(E) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(In millions) 1999 1998 1997
-------- -------- --------
Interest paid $ 13 $ 10 $ 10
Non-cash financing activities:
Treasury shares issued for:
Dividends to shareholders 5 4 4
Associate stock bonus plan 42 - -
(F) ACCOUNTING CHANGES
For information concerning new accounting standards recently adopted, see
page 13-38 of Exhibit 13, Note 1, section on Accounting Changes Adopted, of
Notes to the Consolidated Financial Statements.
IV-11
SCHEDULE III
AFLAC INCORPORATED AND SUBSIDIARIES
Supplementary Insurance Information
Years Ended December 31,
Amorti-
Future zation of
Deferred Policy Deferred
Policy Benefits Other Net Policy Other
Acqui- & Unpaid Policy- Invest- Benefits Acquisi- Opera-
sition Policy Unearned holders' Premium ment and tion ting Premiums
(In millions) Costs Claims Premiums Funds Revenue Income Claims Costs Expenses Written
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1999:
AFLAC Japan $ 2,856 $ 26,734 $ 268 $ 296 $ 5,906 $ 1,111 $ 5,040 $ 151 $ 1,179 $ 5,942
AFLAC U.S. 836 2,194 93 19 1,358 245 845 106 400 1,360
All other - - - - - 13 - - 141 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,692 $ 28,928 $ 361 $ 315 $ 7,264 $ 1,369 $ 5,885 $ 257 $ 1,720 $ 7,302
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1998:
AFLAC Japan $ 2,340 $ 21,507 $ 217 $ 229 $ 4,738 $ 917 $ 4,119 $ 111 $ 924 $ 4,756
AFLAC U.S. 727 1,974 92 15 1,198 216 749 90 349 1,197
All other - - - - 7 5 9 - 202 8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,067 $ 23,481 $ 309 $ 244 $ 5,943 $ 1,138 $ 4,877 $ 201 $ 1,475 $ 5,961
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1997:
AFLAC Japan $ 1,940 $ 17,589 $ 181 $ 187 $ 4,803 $ 893 $ 4,156 $ 103 $ 934 $ 4,818
AFLAC U.S. 641 1,773 92 11 1,062 180 667 77 315 1,065
All other 1 48 4 - 9 5 10 - 124 9
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 2,582 $ 19,410 $ 277 $ 198 $ 5,874 $ 1,078 $ 4,833 $ 180 $ 1,373 $ 5,892
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
See the accompanying Auditors' Report.
IV-12
SCHEDULE IV
AFLAC INCORPORATED AND SUBSIDIARIES
Reinsurance
Years Ended December 31, 1999, 1998, and 1997
(In millions)
Percentage
Ceded to Assumed of amount
Gross other from other assumed
Amount companies companies Net amount to net
----------- ----------- ----------- ---------- ----------
Year ended December 31, 1999:
Life insurance in force $ 44,993 $ 707 $ - $ 44,286 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 6,639 $ - $ - $ 6,639 -
Life insurance 627 2 - 625 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 7,266 $ 2 $ - $ 7,264 -
=========== =========== =========== ========== ==========
Year ended December 31, 1998:
Life insurance in force $ 28,182 $ 566 $ - $ 27,616 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 5,435 $ - $ - $ 5,435 -
Life insurance 510 2 - 508 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 5,945 $ 2 $ - $ 5,943 -
=========== =========== =========== ========== ==========
Year ended December 31, 1997:
Life insurance in force $ 26,382 $ 511 $ - $ 25,871 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 5,401 $ 1 $ - $ 5,400 -
Life insurance 475 1 - 474 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 5,876 $ 2 $ - $ 5,874 -
=========== =========== =========== ========== ==========
See the accompanying Auditors' Report.
IV-13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AFLAC Incorporated
Date MARCH 27, 2000 By /s/ PAUL S. AMOS
----------------------- ---------------------------------
(Paul S. Amos)
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ DANIEL P. AMOS Chief Executive Officer, MARCH 27, 2000
- ------------------------ President and Vice ----------------
(Daniel P. Amos) Chairman of the Board
of Directors
/s/ KRISS CLONINGER, III Executive Vice President, MARCH 27, 2000
- ------------------------ Chief Financial Officer ----------------
(Kriss Cloninger, III) and Treasurer
/s/ NORMAN P. FOSTER Executive Vice President, MARCH 27, 2000
- ------------------------ Corporate Finance ----------------
(Norman P. Foster)
IV-14
/s/ J. SHELBY AMOS, II Director MARCH 27, 2000
- ----------------------------- ----------------
(J. Shelby Amos, II)
/s/ MICHAEL H. ARMACOST Director MARCH 27, 2000
- ----------------------------- ----------------
(Michael H. Armacost)
/s/ M. DELMAR EDWARDS, M.D. Director MARCH 27, 2000
- ------------------------------ ----------------
(M. Delmar Edwards, M.D.)
/s/ JOE FRANK HARRIS Director MARCH 27, 2000
- ------------------------------ ----------------
(Joe Frank Harris)
/s/ ELIZABETH J. HUDSON MARCH 27, 2000
- ------------------------------ Director ----------------
(Elizabeth J. Hudson)
/s/ KENNETH S. JANKE, SR. Director MARCH 27, 2000
- ------------------------------ ----------------
(Kenneth S. Janke, Sr.)
/s/ CHARLES B. KNAPP Director MARCH 27, 2000
- ------------------------------ ----------------
(Charles B. Knapp)
/s/ HISAO KOBAYASHI Director MARCH 27, 2000
- ------------------------------ ----------------
(Hisao Kobayashi)
/s/ YOSHIKI OTAKE Director MARCH 27, 2000
- ------------------------------ ----------------
(Yoshiki Otake)
IV-15
/s/ E. STEPHEN PURDOM Director MARCH 27, 2000
- ------------------------------- ----------------
(E. Stephen Purdom)
/s/ BARBARA K. RIMER Director MARCH 27, 2000
- ------------------------------- ----------------
(Barbara K. Rimer)
/s/ HENRY C. SCHWOB Director MARCH 27, 2000
- ------------------------------ ----------------
(Henry C. Schwob)
/s/ J. KYLE SPENCER Director MARCH 27, 2000
- ------------------------------ ----------------
(J. Kyle Spencer)
/s/ GLENN VAUGHN, JR. Director MARCH 27, 2000
- ------------------------------ ----------------
(Glenn Vaughn, Jr.)
/s/ ROBERT L. WRIGHT Director MARCH 27, 2000
- ------------------------------ ----------------
(Robert L. Wright)
IV-16
3. EXHIBITS
3.0 - Articles of Incorporation, as amended - incorporated by
reference from Form 10-Q for March 31, 1997,
Commission file number 1-7434, Accession No. 0000004977-
97-000011, Exhibit 3.0; and Bylaws of the Company, as
amended - incorporated by reference from
Form 10-Q for June 30, 1996, Commission file number
1-7434, Accession No. 0000004977-96-000012, Exhibit 3.0.
4.0 - There are no long-term debt instruments in which the total
amount of securities authorized exceeds 10% of the total
assets of AFLAC Incorporated and its subsidiaries on a
consolidated basis. We agree to furnish a copy of any
long-term debt instruments to the Securities and Exchange
Commission upon request.
10.0* - American Family Corporation Incentive Stock Option Plan
(1982) - incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the
AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and
Stock Option Plan (1985).
10.1* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement No.
33-44720 on Form S-8 with respect to the AFLAC Incorporated
(Formerly American Family Corporation) Incentive Stock
Option Plan (1982) and Stock Option Plan (1985).
10.1.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.1.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.3* - AFLAC Incorporated Supplemental Executive Retirement
Plan, as amended, effective January 1, 1998 - incorporated
by reference from 1998 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-99-000010, Exhibit 10.3.
10.3.1* - Amendment to the AFLAC Incorporated Supplemental Executive
Retirement Plan effective January 1, 1999, filed with the
1999 Form 10-K.
10.4* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.5* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.6* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
IV-17
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.7* - American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.9.
10.8* - AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 - incorporated by reference from Form
10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.1.
10.9* - AFLAC Incorporated Deferred Compensation Agreement with
Paul S. Amos, dated July 15, 1997 - incorporated by
reference from 1997 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-98-000006, Exhibit 10.11.
10.10* - AFLAC Incorporated 1997 Stock Option Plan, incorporated
by reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
97-000007, Appendix B.
10.11* - AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 - incorporated by reference
from Form S-8 Registration Statement No. 333-69333,
Accession No. 0000004977-98-00024, Exhibit 4.
10.12* - AFLAC Incorporated Amended and Restated Management
Incentive Plan, effective January 1, 1999 - incorporated
by reference from the 1999 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
99-000007, Exhibit A.
12.0 - Statement regarding the computation of ratio of earnings
to fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1999.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 333-16533 with respect to the
AFLAC Associate Stock Bonus Plan, as Amended and Restated
as of January 1, 1999.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
IV-18
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
27.0** - Financial Data Schedule for December 31, 1999.
* Management contract or compensatory plan or agreement.
** All Financial Data Schedules are submitted in the electronic filing only.
EXHIBITS FILED WITH CURRENT FORM 10-K
10.3.1* - Amendment to the AFLAC Incorporated Supplemental Executive
Retirement Plan effective January 1, 1999.
12.0 - Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1999.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 333-16533 with respect to the
AFLAC Associate Stock Bonus Plan, as Amended and Restated
as of January 1, 1999.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
27.0** - Financial Data Schedule for December 31, 1999.
* Management contract or compensatory plan or agreement.
** All Financial Data Schedules are submitted in the electronic filing only.
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